Verizon was currently occupying 44,078 rentable square feet (rsf) in 15000 Midlantic Drive, Mount Laurel, NJ,and paying $15.91 per rsf NNN. The current operating expenses were $6.69 per rsf with the electric charges at $3.45 per rsf (Total of $26.05 per rsf gross full service ). The lease expired November 31, 2011.
After completion of a market survey encompassing both Class A and B properties, we solicited and received proposals from the Colwick Building and 6 Executive Campus, two Class B buildings comparatively slightly inferior buildings primarily due to the superior roadway access of the current location. In leveraging the Verizon tenancy and the need to get to “final numbers” two aggressive proposals were received at starting full service gross rents of $17.70 per rsf and $20.50 per rsf respectively with a standard Tenant improvement allowance and the equivalent of 3 months free rent as an incentive. Each of the proposals requires that Verizon sign a minimum seven-year lease.
The initial proposal included an immediate reduction of the base rent from $15.91 to $14.00 per rsf NNN ($24.14 per rsf gross full service) with a three month base rent abatement totaling approximately $240,000 aggregate or 21% in occupancy cost savings prior to the expiration of the current lease term.
With negotiation, the proposed transaction now includes reducing the base rent from $15.91 to $11.75 NNN ($21.89 per rsf gross full service) with a three-month full service net of electric rent abatement totaling $386,500 aggregate or 34% in occupancy cost savings.
When factoring in the restructured savings compared to paying the current obligation and relocating at the expiration of the lease and using five years as the base line, the total occupancy cost for 15000 Midlantic is $4.8 million compared to Colwick at $4.0 million and 6 Executive Campus at $4.5 million.
While the two alternatives offer reduced long term occupancy costs under the current analysis, consideration must be given to building quality, immediate cost savings and factoring in potential relocation expenses (not included in the current analysis). Additionally, when comparing the market rates to the proposed offers from the three locations, the numbers validate a “market” or better deal in each case.
We therefore suggest proceeding with the renewal/blend and extend transaction at 15000 Midlantic Drive.